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LM Ericsson See Dividend from Marconi and 3G

News Analysis By Robert Liu
TMCnet Wireless and Technology Columnist


NEW YORK The advent of true, mobile broadband through technologies, like High Speed Packet Access (HSPA) and consistent growth for fixed line service is creating tremendous demand for traffic through the core network and for long haul transport and transmission service, according to officials at LM Ericsson Telephone Company.

With the Swedish telecommunications giant roughly seven months into its merger integration of Marconi Plcs optical networking business, the renewed capacity demand is creating new market opportunities, Carl-Henric Svanberg, President & CEO, told analysts, investors, and the media at its Capital Markets Day event in the Big Apples Financial District.

We are talking about, on one hand, the build out of mobile broadband... more subscribers that can do more. Download music, TV, whatever we want to do, we can do that in the network, Svanberg told the gathering that included even Swedish Monarch, King Carl XVI Gustaf. At the same time, on the other side, we have the roll out of fixed broadband. All of that creates a tremendous opportunity in growth and its all going through the same converging core network. But on top of that, its also got to travel bigger distances and thats where transport and transmission comes into play. So this is building up a tremendous potential also and demand in the transport/transmission networks and that is also where our acquisition of Marconi comes into play.

Against the backdrop of the Volvo Ocean Race (formerly known as the Whitbread Round the World Yacht Race, which Ericsson both participates in and sponsors), Ericsson offered its latest contract win, the metro DWDM optical network for Telefnica de Espaa, as proof-positive that it stands to benefit from the greater demand for capacity. The Telefnica multi-haul contract almost entirely represents the business of the former Marconi assets and helps to justify the multibillion-dollar bet placed on the struggling U.K. telecom equipment vendor.

Despite the encouraging signs, though, the Marconi restructuring remains ongoing and Svanberg estimated the cost by year end will likely reach 2 billion Swedish Kronor ($275 million) and include the layoffs of 1,600 workers which resulted in considerable flack for the Swedish company, even prior to formalizing the acquisition last fall. That said, from a business standpoint, the acquisition has provided many of Marconis legacy customers with the reassurance that Ericsson wont abandon support of their network infrastructure.

The acquisition ... the reception of it ... the appreciation from customers was beyond what we expected it to be, Svanberg said.

However, that still doesnt alleviate investors concern about the impact fierce competition is likely to have on Ericssons overall profitability. The competitive threat of encroaching equipment vendors was only highlighted recently when French firm Alcatel announced its intentions to merge with Lucent Technologies to form a combined $25 billion company.

Yet, the Marconi transaction has taught Ericssons top brass that merger synergies on paper arent as easy to realize in practice. Even if product lines overlap, existing customer relationships empower a vendor to keep supporting both product lines and that is likely to keep both Alcatel and Lucent folks busy for some time, the Ericsson chief official explained.

The problem we have with vendors is that if you go and acquire another vendor with overlapping products, you still cant take out the synergies. You must keep those installed networks alive because if one company buys the other one, and the other ones customers say are you going to keep developing my technology, my networkif youre not going to do that and say no, then youre going to have to swap that network. If that is up for swap, then everybodys interested again. Every vendor wants to come in. Then its better to swap the networks than make the acquisition, Svanberg concluded.

Unlike its competitors, Ericssons position is unique in that its technological edge extends into other realms of the wireless ecosystem. On top of the core and long haul businesses, Ericsson Mobile Platforms (EMP) is helping operators build out HSPA-based high-speed networks scaleable to the IP Multimedia Subsystem architecture. The company also has an extensive global services business as well as its handset joint venture with Sony. By its own measures, todays 3G networks already have enough capacity to meet subscribers demands for entertainment like mobile TV, Hakan Eriksson, Ericssons Chief Technology Officer, said during his presentation.

Ericsson takes a more realistic approach to mobile TV. Using a combination of unicasting and multicasting technologies to satisfy fluctuating demand because, the more popular channels could be broadcast using Multimedia Broadcast Multicast Service (MBMS), other, less popular content offerings could be sent via unicast.

Why spend output power and resources in the base station of the cellular network to broadcast something that nobody wants to watch, Eriksson contended.

If 100 percent of subscribers wanted to access mobile TV, the 3G network would only be able to handle MBMS traffic of less than 20 minutes of average usage, but, if roughly half of the total subscriber base is interested, that would allow for nearly 30 minutes per day. Based on internal surveys, end user interest in 30 minutes of MBMS service currently stands at only 15 percent.

Theres plenty of space in the cellular system, the Ericsson official explained. IT

Roberts 15-year communications career spans from the print world to television and to the Internet. He has covered business and technology writing for Dow Jones, Bloomberg Business News, CNN, and Jupitermedias He has served as a producer at CNN, Headline News and A&E Television Networks. You may contact Robert at [email protected].

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